Every $1 Billion Given to Chinese Companies to Build Rail Cars Costs Up to 5,100 U.S. Jobs

By Elizabeth Brotherton-Bunch
Jun 13 2019 |
The Foggy Bottom Metro station in Washington, D.C. The China Railway Rolling Stock Corp., a Chinese state-owned enterprise, is aiming to nab a contract to build new rail cars for the capital’s transit system. | Getty Images

Oxford Economics report provides more reasons why state-owned companies shouldn’t build transit.

We’ve been writing quite a bit lately about the dangers of giving Chinese state-owned enterprises (SOEs) taxpayer-funded contracts to build U.S. transit systems — we even launched a petition on Monday, which you should sign!

A lot of attention has been paid to the national security risks that come with granting contracts to Chinese SOEs, and for good reason. Now a new study from Oxford Economics is highlighting the economic impact these contracts have on American jobs.

The results are concerning, to say the least.

For every $1 billion awarded to a Chinese SOE to build passenger rail cars leads to the loss of 3,250 to 5,100 jobs, the report finds. To put it into different terms, each U.S. job created by a Chinese SOE costs between 3.5 and 5.4 jobs, when “factoring the direct, indirect, and induced economic impact.”

The report is timely, given the success of SOEs like the China Railway Rolling Stock Corp. (CRRC) in nabbing taxpayer-funded contracts to build rail systems in the U.S. CRRC already has won contracts to build railcars in Boston, Philadelphia, Chicago, and Los Angeles, and is aiming to land several more, including in Washington, D.C., and New York.

CRRC manages to win these contracts because it severely underbids its competitors — up to 21 percent, according to the Oxford Economics researchers — and it is able to do so because of its direct ties to China’s government, which is seeking to dominate global industry as part of its “Made in China 2025” plan. China doesn’t intend to make money off these individual projects; rather, it wants to monopolize the entire transit system.

Oxford Economics wanted to see what the future impacts could be if Chinese SOEs continued to win these contracts. It used a hypothetical $1 billion contact in passenger railcar production as a guide, and looked at three different scenarios:

  • Legacy Producers: A baseline scenario of existing, well-integrated current railcar manufacturers;
  • Buy America: Chinese SOEs are awarded contracts but must follow Buy America guidelines that require production in the U.S.; and
  • High Disruption: Chinese SOEs are awarded contracts and Buy America provisions do not apply.

The researchers then examined the potential economic effects of each scenario, including direct impact (factory workers and staff), indirect impact (like suppliers to the factory) and induced impact (how factory workers spend their money in the wider economy).

The legacy producers scenario led to 11,570 direct, indirect and induced jobs, along with $1.2 billion in GDP; the Buy America scenario placed second, with 8,317 jobs and $883 million in GDP.

The high disruption model, meanwhile, fared the worst, creating 6,492 jobs and leading to $693 million in GDP. That means that compared to the legacy producers scenario, every one new job created costs 5.4 U.S. jobs.

So while Chinese SOEs like CRRC might offer the lowest bid on an individual rail transit contract — which they’re only able to do because of ties to China’s authoritarian government, remember — good-paying jobs and big-time economic revenue are being left on the table.

And again, that’s not to even discuss all of the security risks that come with Chinese SOEs building U.S. transit systems.

America’s tax dollars shouldn’t be used to support Chinese SOEs that undermine market competition, cost jobs, and jeopardize supply chains.

Tell Congress to pass the Transit Infrastructure Vehicle Security Act, bipartisan legislation to prevent federal funding of transit made by Chinese state-owned enterprises like CRRC.